…

Regime change

Neoliberal restructuring promised a reversal of the decline in profits. Couched in the language of individual freedom, it would raise profits by undermining the bargaining power of labour, cutting taxes on capital and opening new profit centres through privatization and deregulation. In addition, capital had resented the expansion of the regulatory state in the 1960s into environmental protection, consumer safety and occupational health. Neoliberal restructuring would reverse those changes. Big business abandoned its previous compromise with labour and allied with small business, which had never accepted the regime of regulated capitalism, and was able to rapidly push through neoliberal restructuring. This began not with Reagan, but during the last two years of the Carter Administration. The us, supported by the uk, then took the lead in pushing through the neoliberal restructuring of global economic institutions. Free-market or neoliberal ideas had been growing in influence from the late 1960s; they now displaced Keynesianism to become the new orthodoxy, motivating and justifying the institutional shifts. The capital–labour compromise was replaced by a drive to fully subordinate labour to capital. [6]

Advocates of neoliberal restructuring had promised a big increase in investment as business was unshackled from state regulation, high taxes and trade-union pressures. However, business investment in the neoliberal era has been lacklustre, apart from the investment boom in new information-processing and communications technologies in the 1990s. Instead, the long expansions were propelled by debt-financed consumer spending. Both the share of consumer spending in gdp (Figure 7), and the level of consumer spending as a percentage of disposable personal income (Figure 8), trended upward after the early 1980s. While us gdp growth in the era of regulated capitalism had been led by investment and government spending, now it was driven by consumer spending, with the growth in investment and government spending lagging behind (Table 1). [9]

Structural crisis of neoliberal capitalism

The 2000s economic expansion was sustained by the huge real-estate bubble. However, every asset bubble bursts eventually, and when real-estate prices stopped rising in 2006 and began to fall in 2007, these unsustainable long-term trends brought about both the financial crisis and the Great Recession. The deflating real-estate bubble rapidly drove down the market value of the new derivative securities, which constituted a significant fraction of the assets of the banks that had accumulated so much debt. In September 2008, the major us banks suddenly became reluctant to engage in the essential overnight lending that kept the financial system afloat, as they couldn’t be confident of repayment. The system froze up, the banks faced failure.